8 Things To Consider When Buying a Co-op
When considering buying a NYC apartment, you have two options: Co-op (short for “cooperative”) and condominium.
Approximately 75 percent of buildings in New York City are co-ops. Co-ops have a unique ownership structure – a single corporation owns the entire building. Instead of a deed, buyers get shares, or stock certificates, in the corporation, and a proprietary lease that allows buyers to occupy a specific unit.
The process of purchasing a co-op in NYC is rather different than your traditional home or condo-buying transaction. It is essential to have an understanding of the nuances of the co-op purchasing process.
In general, the purchase of a unit in a cooperative or condominium carries many significant legal and financial consequences, which is why the Attorney General highly recommends that a potential buyer consult with an attorney before signing a purchase agreement.
We compiled a list of 8 things to consider before embarking on one of the largest purchases of your lifetime.
#1: Seek help of a NYC broker
If you don’t have a broker, you are faced with the big possibility that the seller’s broker, whose fiduciary responsibility is to do anything legally in their power to find angles in the deal that will be in favor of the seller, not you. Unfortunately, many buyers don’t seek broker representation, even when there is no cost for them.
A competent broker will help you to navigate the intricate process of buying a co-op – make sure you partner with an agent experienced with NYC co-op sales.
Your chances of purchasing your dream unit are much higher with the help of a reputable NYC real estate agent who is knowledgeable and experienced in financial requirements of co-op buildings.
#2: Do not overestimate your financial strength
To be financially strong is not enough for a mortgage pre-approval. Co-op boards will want the reassurance that you can continue to pay monthly maintenance even if your job situation changes for the worse.
Typically, the board is looking for enough liquid assets after closing to cover 24 months of mortgage and maintenance expenses. If your reserve after closing does not reflect that, you may need to consider a different mortgage structure to either reduce the down payment or lower monthly payments. Otherwise, you may have to be more realistic about your maximum co-op purchase ability.
#3: Get informed about the co-op board
Even if you have perfect credit, healthy financials, and impressive letters of support, the board still may dismiss your application.
It could be because the board may believe that your intention is to rent your unit, and if that is the case, check that the building is investor friendly before signing the sales contract. Or, and this is becoming more common, the board may be concerned that the purchase price you’re paying is low enough to reduce property valuations of other units. Other factors that may present challenges – the co-op may not allow pieds-a-terre, gifting, or co-purchases financed by family members.
The best approach is to try to learn the board’s limitations and rules before making an offer.
#4: Prepare for the interview with the co-op board
At the board interview, remember that it is not the time for you to ask questions of the co-op board.
Questions can often unintentionally convey a negative persona to the board. Simply answer questions that are asked of you and let the board direct the conversation. Any further inquiries you might have should be directed through your real estate agent or your attorney. Save questions for after you are approved rather than potentially jeopardizing the interview and your approval.
#5: Ensure the co-op is on your mortgage provider’s approved list
You have about 30 days to obtain a mortgage commitment letter from the date the sales contract goes into effect – providing the institution that granted your mortgage pre-approval has the co-op on their approved lending list.
If they are not, it could be due to the lending institution considering that the building’s finances are not healthy enough. Or, maybe the institution has already underwritten several mortgages in the building, posing too high of a risk, or the building’s original sponsors own multiple units.
The solution? Check with a mortgage professional, and be prepared to check with other lending institutions, too. Be cautious with mortgage brokers who assure you that the building will be approved once the mortgage application is submitted, because the reality is that it may not be.
Finally, if you sign a contract that is non-mortgage contingent, you will be in breach of contract if you can’t find a willing lender, in which case not only will you lose the co-op, but also you may lose your deposit.
Think twice and seek professional legal assistance before signing a sales contract without mortgage contingency.
#6: Check if there is a lien against the unit
If the seller is in financial distress there may be a lien against the apartment; the lien holder will have to be notified of the closing, which can cause major delays. The delay can cause the mortgage lock to expire, which can lead to, among other complications, the buyer being forced into a higher mortgage rate.
Your experienced NYC real estate lawyer can assist with lien search, and, if any issue is detected, make sure that the seller’s attorney is handling it. Another thing to ensure is that the seller is willing to pay his liens at the closing and that he has the bill from his lien-holders.
#7: Be prepared for the closing
A co-op purchase closing can take a very long time to complete if both buyer and seller are not properly prepared. Make sure you go over the steps and details of closing with your attorneys beforehand. Since there’ll be quite a lot of papers to sign and checks to prepare, if you don’t have a clear understanding what those documents mean and what fees you are about to pay, the transaction may be prolonged.
Instead of title insurance, you’ll be purchasing a lien search. It will show whether or not there are any liens/judgments, etc. on both the unit you’re buying and the co-operative building. Rely on your NYC real estate attorney to assist you with the lien search process.
Before the co-op closing, your agent should attend the “final walk-through” the unit, in order to ensure everything appears to be in order. In addition to reading the offering plan section, which describes the physical condition of the building, you can also review the minutes of board meetings. While inspecting a home before closing, the written list of defects or findings, known as a “punch list”, will be presented so that those items can be repaired before or after the closing of title.
It’s crucial to be informed and protect yourself when purchasing a co-op or any other real estate, and proficient NYC real estate lawyers will be able to take care of many legal nuances.
At a co-op closing, the buyer gives the seller their money, and the seller gives the buyer the proprietary lease. Attending the closing should be the buyer and the seller, their attorneys, sometimes their real estate agents or someone from the mortgage company. The attorneys will have a closing statement with all the costs paid by the buyer and the seller, including brokers and attorney’s fees, flip taxes, etc.
For detailed information on everything that a closing entails and all the fine print points, make sure you talk to your real estate attorneys in NYC.
#8: Have proper legal representation
This is one of the largest and most complex purchases you will likely make in your lifetime. Do not cut corners by attempting a do-it-yourself method, or hire your friend or cousin with little or irrelevant experience.
Your lawyer will be responsible for inspecting the co-op’s financial history, investigating the building’s future plans and reviewing the sales contract, so it’s essential to hire a specialized professional. You want to have an expert on your side, who is competent and familiar with the hurdles and nuances of New York City real estate law.
Levin Law Group real estate attorneys will review the transaction summary sheet, fully investigating the co-op’s corporation, finances, building and unit you are purchasing. At the same time, we will be negotiating the contract so that it contains all relevant components of the deal.
At Levin Law Group, we expertly prepare co-op closing statements and documents, and also facilitate our clients at the actual closing.
We will keep you well informed of your legal rights and obligations, review your contract prior to signing and ensure all provisions of the deal are in your best interest. In case any issues arise before closing, our knowledgeable NYC real estate attorneys will represent you, and be there to answer any outstanding legal questions after the closing is complete.
Trust the Levin Law Group’s seasoned and dedicated real estate lawyers in New York City and nearby areas to assist you during your co-op transactions.
Make sure your interests and rights are protected – contact us today.